MOUNTING pressure on the Bank of England to cut the base rate has been described by Scottish economists and business leaders as a virtual irrelevance.
In a gloomy quarterly inflation report, Governor Sir Mervyn King slashed the 2012 growth forecast to zero and predicted only weak growth until 2015.
In its wake a selection of Scotland's foremost economy-watchers all agreed that the rate cut from 0.5% to 0.25% called for by groups like the British Chambers of Commerce and the Ernst & Young Item Club would do little to provide a stimulus.
Donald MacRae, chief economist at Lloyds TSB Scotland, said: "There are much more important things to do than lower the base rate by 0.25%.
"Bank of England surveys show why companies aren't investing. The cost of finance is not by any means the most important. The most important is confidence. That's the thing that needs to be addressed."
David Watt of the Institute of Directors in Scotland did not think that halving the base rate was a big issue.
"Businesses are still paying 8% to 10% to borrow money, so a quarter-point difference is not far away from irrelevant," he said, adding that we need a "big stick" for beating the banks into feeding money into the economy.
Jeremy Peat, director of think tank the David Hume Institute, said: "We have had the record low interest rates for over three years. What difference would it make?" The experts echoed King's own response last week that such a cut would be "more counter-productive than beneficial", although the bank's Monetary Policy Committee has seriously considered the move and most forecasters believe it could take place before the year is out.
The main economic benefit from a reduced base rate would be to householders with tracker mortgages, who number about two million of the UK's 11 million mortgage holders.
According to industry estimates, the move would save them about £400 million. Yet it is far from clear if all this money would be spent on consumption, while any benefit would have to be offset against potential losses to savers.
Peat and MacRae both believe that the time has come for Chancellor George Osborne to loosen his austerity programme and allow the national deficit to increase by borrowing money to invest in infrastructure.
Watt agreed on the need for a big infrastructure push, accusing the Chancellor of "political dogma" for not instituting such a push, though he believed it could be done through making savings to the budget.
"We need to focus on growth without increasing public sector debt," he said.
"It's a small example, but why do I get my eyesight and dental checks free of charge when that money could be used to build roads?
"If we just raise debt the money markets will start raising our borrowing rates and we will be as bad as Spain."
Peat countered: "The more we defer GDP growth, the more the debt to GDP grows because of the decline in GDP. That's a very dangerous position to get into. It's an illusion to think that by stamping on the neck of the economy, one gets debt to GDP down more rapidly.
"A little bit more realism on the public finances would enable a return to even modest growth."
l Best savings deals: page 44
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